Western Digital 2010 Annual Report Download - page 25

on the demand for hard drives in any given period. As a result, the hard drive market has experienced periods of excess
capacity which can lead to liquidation of excess inventories and intense price competition. If intense price competition
occurs, we may be forced to lower prices sooner and more than expected, which could result in lower revenue and gross
margins.
Our failure to accurately forecast market and customer demand for our products could adversely affect our business and finan-
cial results or operating efficiencies.
The data storage industry faces difficulties in accurately forecasting market and customer demand for its products.
Accurately forecasting demand has become increasingly difficult for us, our customers and our suppliers in light of the
volatility in global economic conditions. The variety and volume of products we manufacture is based in part on these
forecasts. If our forecasts exceed actual market demand, or if market demand decreases significantly from our forecasts,
then we could experience periods of product oversupply and price decreases, which could impact our financial
performance. If our forecasts do not meet actual market demand, or if market demand increases significantly beyond
our forecasts or beyond our ability to add manufacturing capacity, then we may not be able to satisfy customer product
needs, which could result in a loss of market share if our competitors are able to meet customer demands.
Although we receive forecasts from our customers, they are not generally obligated to purchase the forecasted
amounts. Sales volumes in the distribution and retail channels are volatile and harder to predict than sales to our OEM or
ODM customers. We consider these forecasts in determining our component needs and our inventory requirements. If we
fail to accurately forecast our customers’ product demands, we may have inadequate or excess inventory of our products or
components, which could adversely affect our operating results.
In order to efficiently and timely meet the demands of many of our OEM customers, we position our products in
multiple strategic locations based on the amounts forecasted by such customers. If an OEM customer’s actual product
demands decrease significantly from its forecast, then we may incur additional costs in relocating the products that have
not been purchased by the OEM. This could result in a delay in our product sales and an increase in our operating costs,
which may negatively impact our operating results.
Our entry into additional storage markets increases the complexity of our business, and if we are unable to successfully adapt
our business processes as required by these new markets, we will be at a competitive disadvantage and our ability to grow will
be adversely affected.
As we expand our product line to sell into additional storage markets, the overall complexity of our business
increases at an accelerated rate and we must make necessary adaptations to our business model to address these
complexities. For example, as we have previously disclosed, we entered the traditional enterprise market in November
2009. In addition to requiring significant capital expenditures, our entry into the traditional enterprise market adds
complexity to our business that requires us to effectively adapt our business and management processes to address the
unique challenges and different requirements of the traditional enterprise market, while maintaining a competitive
operating cost model. If we fail to gain market acceptance in the traditional enterprise storage market, we will remain at a
competitive disadvantage to the companies that succeed in this market and our ability to continue our growth will be
negatively affected.
Our customers’ demand for storage capacity may not continue to grow at current industry estimates, which may lower the prices
our customers are willing to pay for new products or put us at a disadvantage to competing technologies.
Our customers’ demand for storage capacity may not continue to grow at current industry estimates as a result of
developments in the regulation and enforcement of digital rights management, the emergence of processes such as cloud
computing, data deduplication and storage virtualization, or otherwise. These factors could lead to our customers’storage
capacity needs being satisfied at lower prices with lower capacity hard drives or solid-state storage products that we do not
offer, thereby decreasing our revenue or putting us at a disadvantage to competing storage technologies. As a result, even
with increasing aggregate demand for storage capacity, our ASPs could decline, which could adversely affect our
operating results.
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